6 - TAX (fin) Flashcards
Types of tax
VAT
- businesses generally add VAT onto the prices they charge (tho could elect not to and pay themselves)
- charges on most goods and servs in UK and some that are imported
Stamp duty
- charges on paper based transfers between investors (shares 4 £)
SDRT
- charged on most holdings held in dematerialized form
SDLT
Tax paid on purchase of land in UK and NI
PERSONAL
CGT
- tax on profit on disposal of an asset
IHT
- tax on the estate of someone who has died (payable on 6m after death
Income tax
- tax paid on earnings
Statutory residency tests - automatic overseas
Automatic overseas
- UK res 1/more of last 3 tax years and <16 days in UK in current tax year
- not UK res for last 3y and <46 days in UK current
- work full time abroad and <91 days in UK and <31 days working in UK
Automatic UK - residency
- in UK at least183 days of tax year
- home in UK and pres for at least 30 days (must have had home >91 consecutive days) + pres in overseas home <30 days
- work full time in UK for period of 365 days with >75% of days worked >3hrs in UK
Sufficient ties test - residency
If indiv meets neither auto test reqs
Family tie - civil partner/spouse/minor children liv in UK (time spent with minor children ignored if <61 days)
Accommodation tie - accom avail to use for continuous period of >90 days in tax year and 1 night spent
Work tie - work in UK >3hrs/day for at least 40 days/year
90 day tie - spent >90 days in UK in either of last 2 tax years
Country tie (leavers only) - spend more days in UK than any other country
Number of days spent in UK determines no of ties required to be resi for tax purposes
residency vs domicile
Tax residency = ST concept, determined separately for each tax year, broadly reflects where you reside
Domicile = more LT, country that you consider to be your permanent home
UK dom/deemed dom = liable for IHT on worldwide assets
non UK dom = only liable to IHT on UK assets ( not gilts, unit trusts and OEICs if non dom)
Formerly domiciled resident - deemed domicile
From April 2017 - to stop people establishing non domicality for IHT pre dead and then returning to the UK
Formerly dom resi =
- born in UK
- domi of origin UK
- resi in UK for this tax year and at least one of two immediately preceding tax years
OR UK res for 15/2- last tax years
Res non dom tax (if no remittance basis claimed
No UK tax if foreign income <£2k and not transferred to UK
If inc >£2k, or any remitted to UK - pay UK tax on WW income
May be able to claim back - DTA
OR CLAIM REMITTANCE BASIS
Investment bonds
– designed as wrapper to hold series of CIS (usually tho choice is now widening)
- lump sum investment into life assurance prod (so not qualifying and will be tax to pay eventually, tho deferred)
- designed as wrapper to hold investments
-Tiny amount of life cover - typically pays out 101% of value on death
- subject to income tax not CGT
- up to 5% of initial investmemnt amount can be withdrawn a year on (higher rate= onshore) tax deferred basis (cumulative so after 4.5y can take 25%)
- - onshore bonds suffer tax @ 20% internally (not redeemable for non taxpayers)
- offshore bonds = no internal tax
- tax payable on chargeable event
- neither is tax free just tax deferred (onshore HR tax deferred)
- if you do non permissable withdrawal (take >5%), tax @ marginal rate on excess
- mostly written as whole life policies so investment period is open (may be single or joint life)
- joint life benefit = bond can continue throughout lifetime of spouse
- all non quali
- can add children/grandchildren as life assureds to prevent auro encashment on death of holder in time of poor fiscal/market conditions
- can issue in segments and assign to low tax paying individuals
- can issue on capital redemption basis - so only comes to auto end after set term normally 99 years
- have 5% pa tax deferred, cumulative withdrawal facility
Chargeable event investment bonds
DAMES
Death
Assignment for money’s worth (not gifting)
Maturity (some have limited lifespans)
Excess partial surrenders (over % per annum cumulative facility, taxed immediately on excess)
Surrender (back to insurance company)
Tax of investment bonds
GTI
G = GAIN = CALC THE CHARGEABLE GAIN
= amount received from assignment/surrender - total premiums paid+ permissible withdrawals
(CHECK WITHDRAWALS ARE UNDER 5%) + to income to check tax rate
T = TOP SLICING RELIEF
- on full surrender, chargeable gain can be divided by no. of complete years policy has been in force (round down partial years)
I = INCOME
Add the slice to the other income received in the year of surrender + tax as usual utilizing allowances - Taxed as SAVINGS INCOME
Work out tax due on slice (deducting 20% for offshore bond taxed @ source)
Multiply by number of complete years
People can time surrender to make use of avail BRB or PSA (e.g. low income year, big pension contribution, living on TFC)
Offshore vs onshore bonds
Offshore bonds
- tax efficient wrapper
- sales within bond free of CGT
- charges tend to be slightly higher than onshore
- also non quali
- UK divi income free of IT
- overseas divi income subject to irrecoverable withholding tax
- can withdraw up to 5% of orig investment each year without having to pay tax
- if PH was non UK res for life of pol, gain is reduced by fraction equal to period of non residency
- for UK res, all gains (inc, divi, growth) are taxed as income when tax becomes due
when chargeable event occurs (DAMES) - IT becomes liable on any gains and income - allows tax to be deferred
Tax efficient investment for non dom
Business investment relief
income and gains can be remitted to UK by non doms without giving rise to tax charge if invested in an EIS company within 45 days
OR if you invest in EIS up to 1yr before can claim retrospectively
Must take offshore within 45 days of sale
Same relief as UK investor - gains can remain onshore tax frere
Types of domicile (4)
DOMI OF ORIGIN
- acquired @ birth usually from father, take mothers if father dies or born out of wedlock
DOMI OF CHOICE
- move to new cunch with intention of living permanently - no strict rules for acquiring domi change but factors include citizenship, will, jobs etc
DEEMED DOMI
- resi in UK for 15/20 last tax years
- if leave UK and stop being resi - lose deemed domi status after 3y for IHT and CGT purps
DOMI OF DEPENDENCY
- prior to 1974 married women acquired domi of husband
UK dom/deemed dom = liable for IHT on worldwide assets
non UK dom = only liable to IHT on UK assets
concept of domicile to be abolished next tax year under current spring budget
Remittance basis
For res non dom or resi but not tax resi
Non dom indivs can claim remittance basis (as opposed to usual arising basis) where
- UK tax paid only on income/gains earns abroad when they are brought into UK
- UK income/gains still taxed on arising basis (including if inc is from UK comp)
GIVEN
- without charge and claim if unremitted inc/gains <2k or for minors (only time allowances are kept)
- with claim but without charge if res in UK <7/prev 9 tex years
-with claim + 30k pa if resi for >7/9 last TY
- with claim and 60k charge pa is resi for 12/14 prev years
LOSE BOTH INCOME TAX PERSONAL ALLOWANCE AND ANNUAL CGT ALLOWANCE IF CLAIMED
UK resi and dom tax
UK tax on arising basis on global inc/gains
If taxed on foreign income/gains locally - still liable for UK tax and must declare but relief of given in UK for foreign tax paid under double taxation agreements
Tax rates
savings rate band of 5k applies where NSI <17570/ taxable inc below 5k (in addition to savings allowance)
Get 5000 - whatever taxable NSI income you earn (inc over 12570)
12570 PA
>50270 = higher rate
>125140 = ART (no PA at this amount)
Lose £1 PA for every £2 over £100k
Personal savings allowance = 1k BR, 500 HR, 0 ART = uses up BR band
Divi allowance £500 = uses up basic rate band
Property and trading allowances - e.g. vinted
Can earn <£1k @ source without declaring (must keep records)
If income >£1k - must declare and then pay tax. can either use allowance and dedut 1k or deduct allowable expenses (and do IT regularly which is usually more beneficial)
Cant use for income under rent a room scheme = as you can earn already 7.5k tax free if there is shared living space and no self contained annex
Adjusted net income
All income w/out removing any allowances
- trading loss relief
- gross pension contributions
- donations made via giftaid (grossed up @ basic rate)
- pension contributions paid gross (deducted pre tax from salary)
- pension contributions where provider has given tax relief @ basic rate
- dont include gains
ANI determines entitlement to personal savings allowance an interest allowance
Tax calcs for pension contributions
Gross contribution (PAYE)
- deduct contribution from ANI (to assess bands)
- deduct contribution from NSI
- tax as usual
Net contributions
- gross contribution up @ BR
- deduct grossed up contribution from ANI
- expand basic rate band by grossed up contribution and tax as usual
Marriage allowance
Avail for married couples and civil partners
- allows you to transfer some of your personal allowance to husand/wife/partner
- can transfer up to 1260 of PA - reduces their tax by up to 252
- transfer from non tax payer to tax payer
- receiver must be BR taxpayer
- married couples allowance - if born before 1935 - more beneficial tax reducer @ 10% of 11080 max
- income limit is 37k, MCA reduced by /31 for every £2 of income above this.
- MCA min is £4280
- cant use both
Mortgage interest relief
prior to 17/18
- taxpayers could deduct mortgage interest from from rents received when calculating taxable income
phased out 20/21
- now relief paid out as tax credit on lower of 20% of
- finance costs
- property bis costs
- adjusted total income
Tax reliefs
ELIGIBLE INTEREST
- tax relief on gross interest paid on loans for
- to purchase commercially let prop, buy shares/make loan to closely held comp, pay IHT, buy interest in partnership, coop, buy shares in employee controlled comp
- relief @ marginal rate, deducted from income to reduce taxable income
GIFTS TO CHARITY
- giftaid scheme applies to any gifts made to registered charity, assumed made net of BR
PAYROLL GIFTING
- GAYE - auto relief @ marginal rate, deducted from gross salary
GIFTS OF SHARES/SECS TO CHARITY
- listed shares, can deduct cost of shares + costs + claim @ marginal rate
DOUBLE TAXATION RELIEF
- protects indivs from being taxed twice on same income
UNILATERAL/CREDIT RELIEF
- where no DTA, credit relief applies instead - DTR on source by source basis @ lower of overseas tax or UK tax
WITHOLDING TAX
- deducted in gov by one country when inc earned in that cunch is paid to someone overseas
MAINTENENCE PAYMENTS
- when mandated by court, paid gross when 1/both parties born before 1935
ISA TYPES
ISA = tax efficient savings/investments
STOCKS AND SHARES - 18y
- corp/gov bonds, UK listed ITs, life assurance prods, AIM shares and listed shares, UK auth unit trusts and OEICS, shares acquired via employee stock plan in past 90 days even if not listed
FLEXI ISAs
- money can be wtihdrawn and replaced in same tax year (not JISAs)
CASH- 16y
- cash on deposit with building society/bank + some NSI prods
H2B
- now closed to new savers, 25% gov contribution up to 3k on 12k investor contribution
- must invest 200pcm with initial 1.2k
- house price 250k, 450k London
LISA - 18 - 40
- 25% gov bonus max investment 4kpa,
- proceeds used for first home 450k house London or >60yrs/terminally ill
- 25% penalty for early withdrawl
INNOVATIVE FINANCE >18y
- P2P loans and cash investments, must be facilitated by FSMA auth operatory
JISA
- LT saving for children, 9k sub limit
What is a VCT vs EIS vs SEIS
VCT
- enables investment into small/high risk trading comps w/ unlisted shares
- VCT itself listed on XC (nav, prem, disc)
- VCT exempt from corp tax on disposal of investments once approves by HMRC
- tax reliefs to encourage investors to provide capital to start ups
EIS
- designed to help smaller, higher risk trading comps
- investor tax reliefs encourage
- comps must meet criteria to issue shares under scheme
-investor must not be connected to comp when subscribing
- shares not redeemable fro >3y
SEIS
- smaller, riskier, earlier stage
- investors cannot have >30% stake
- can issue shares via EIS or receive VCT investment if they have spent >70% of SEIS money
- cannot issue via SEIS if already done VCT/EIS
Rules for issuing company VCT, EIS, SEIS
None for VCT as it’s a trust
EIS
- unlisted with no listing arrangements (AIM allowed)
- qualifying trade = hotels, prop development, nursing homes, farming, legal/FS excluded
- gross assets <15m before issuing
- <250 full time employees
SEIS
- UK bases
- <25 employees
- <250k gross assets
- <3y old
- same quali trade
- not raised >250k via SEIS previously
PETs
Most lifetime gifts are PETs = become fully exempt if donor survives 7 yrs
- transfers where donee is clearly identifiable
- on death: chargeable @ death rates if over NRB if donor doesn’t survive 7y
- tapered if death occurs between 3-7y
-bare trusts or trust for disable people can receive PETs, other transfers to trusts are CLTs
If CLT to trust made >7ys before death - can effect amount of tax paid later for failed PET and CLT. any chargeable transfers >7yrs before gift reduce NRB for gift being assessed
ONLY TAPER TAX ON THE GIFT NOT THE GIFT ITSELF = IF GIFT IS IN NRB THEN NO TAPERING
IHT transfer on death calc steps
National insurance + contributions
UK tax system to fund state benefits e.g. state pension, healthcare, jobseekers allowance etc
SDLT
pay SDLT when you buy houses, flats and other land and buildings over a certain price in the UK
Reliefs and exemptions
- property transfers where no £ changes hands
- property left in a will
- divorce/dissolution of civil partnership
- freehold purchases < 40
1st time buyer SDLT
<450k = 0%
425k - 625k = 5%
> 625 = standard rates no relief claimable on anything
